MULTI-COUNTRY ANALYSIS OF EXISTING TRANSFER PRICING

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

MULTI-COUNTRY ANALYSIS OF EXISTING TRANSFER PRICING SIMPLIFICATION MEASURES

10 June 2011

This Report was approved for release by the Committee on Fiscal Affairs

on 8 June 2011

CENTRE FOR TAX POLICY AND ADMINISTRATION

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10 June 2011

MULTI-COUNTRY ANALYSIS OF EXISTING TRANSFER PRICING SIMPLIFICATION

MEASURES

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“TPG”)

provide internationally accepted guidance on the application of the arm‟s length principle set out in Article

9 of the OECD and UN Model Tax Conventions. While the OECD works on an ongoing basis to monitor

and revise the TPG in order to continually improve the transfer pricing guidance available to taxpayers and

tax administrations, it also recognises the growing need to address practical and administrative aspects of

implementation of the TPG.

The OECD‟s Committee on Fiscal Affairs (“CFA”) launched in 2010 a project on the administrative

aspects of transfer pricing including a review of techniques that may be implemented by countries to

optimise the use of taxpayers‟ and tax administrations‟ resources. A survey was conducted as part of this

project. This document presents the main findings from the survey. Thirty-three OECD and non-OECD

countries provided detailed responses concerning measures currently existing in their domestic law to

simplify the application of their transfer pricing rules.

The survey described in this document focussed specifically on simplification measures countries have

adopted as part of their transfer pricing regimes. These include not only safe harbours but also measures

such as less stringent documentation requirements, alleviated penalties, streamlined procedures, etc. This

document contains both an analysis of the key findings from the survey and a compilation of the country

responses.

The results of this survey will help to inform the work currently being pursued by the CFA to improve the

administration of transfer pricing for OECD and non-OECD economies. That work will include revisiting

the existing guidance on safe harbours in Chapter IV of the TPG with a view to possibly updating it in

order to reflect the experience acquired since the TPG were first published in 1995. It will also include an

analysis of the advantages and disadvantages of various forms of transfer pricing administrative

simplification and may lead to the development of good practice recommendations in this area.

Interested parties are invited to send comments on the main findings presented in this document and more

generally on the administrative aspects of transfer pricing before 30 June 2011 in Word format to Jeffrey

Owens, Director, CTPA ([email protected]). Unless otherwise indicated by the commentators at the

time of submission, the contributions received may be posted on the OECD Internet site.

See www.oecd.org/document/15/0,3746,en_2649_33753_47265231_1_1_1_1,00.html for further

information.

mailto:[email protected]

http://www.oecd.org/document/15/0,3746,en_2649_33753_47265231_1_1_1_1,00.html

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TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................................... 5

ANALYSIS OF THE COUNTRY RESPONSES RECEIVED

Q1 General transfer pricing obligation ...................................................................................................... 9 Q2 Scope of existing simplification measures in the transfer pricing area ............................................. 10 Q3 Absence of simplification measures .................................................................................................. 13 Q4 Legal basis ......................................................................................................................................... 14 Q5 Simplification measures involving a specific transfer pricing method (“TPM”) .............................. 16 Q6 Optional regimes versus exclusions from obligations ....................................................................... 18 Q7 Rules that alleviate documentation, penalties, or other compliance burdens .................................... 20 Q8 Administrative practices .................................................................................................................... 22 Q9 Assessing the effectiveness of the simplification measures .............................................................. 24 Q10 Double taxation cases caused by simplification measures .............................................................. 26 Q11 Domestic transactions ...................................................................................................................... 27

ANNEX: COUNTRY RESPONSES RECEIVED

Argentina ................................................................................................................................................... 30 Australia .................................................................................................................................................... 32 Austria ....................................................................................................................................................... 36 Belgium ..................................................................................................................................................... 39 Canada ....................................................................................................................................................... 42 Chile .......................................................................................................................................................... 45 Czech Republic.......................................................................................................................................... 47 Denmark .................................................................................................................................................... 50 Estonia ....................................................................................................................................................... 53 Finland ....................................................................................................................................................... 56 France ........................................................................................................................................................ 59 Germany .................................................................................................................................................... 62 Hungary ..................................................................................................................................................... 65 India ........................................................................................................................................................... 69 Ireland ........................................................................................................................................................ 72 Israel .......................................................................................................................................................... 75 Italy ............................................................................................................................................................ 78 Japan .......................................................................................................................................................... 81 Korea ......................................................................................................................................................... 84 Luxembourg .............................................................................................................................................. 86 Mexico ....................................................................................................................................................... 88 Netherlands ................................................................................................................................................ 92 New Zealand.............................................................................................................................................. 95 Norway ...................................................................................................................................................... 98

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Poland ...................................................................................................................................................... 101 Slovenia ................................................................................................................................................... 104 South Africa ............................................................................................................................................ 107 Spain ........................................................................................................................................................ 110 Sweden .................................................................................................................................................... 114 Switzerland .............................................................................................................................................. 117 Turkey ..................................................................................................................................................... 119 United Kingdom ...................................................................................................................................... 122 United States............................................................................................................................................ 125 European Union ....................................................................................................................................... 130

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INTRODUCTION

A - Background

1. The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

(“TPG”) provide internationally accepted guidance on the application of the arm‟s length principle set out

in Article 9 of the OECD and UN Model Tax Conventions. The TPG were originally approved in 1995

and were substantially revised in 2010. The OECD is constantly monitoring the implementation of the

TPG and working on the development of consensus international guidance to address some of the most

complex areas of transfer pricing. In 2010, the Council of the OECD approved the 2010 update of the

TPG which contains updated guidance on comparability analyses and on the selection and application of

transfer pricing methods, as well as new guidance on the transfer pricing aspects of business

restructurings. On the same day, the Council of the OECD approved the 2010 Report on the Attribution of

Profits to Permanent Establishments. The OECD started in 2011 a new project on the transfer pricing

aspects of intangibles.

2. While there is a need for the development of increasingly sophisticated guidance for complex

transactions, it is also essential to promote a cost-effective use of taxpayers‟ and tax administrations‟

resources for improved compliance and enforcement processes. In effect, countries often have scarce

administrative resources to enforce transfer pricing rules. At the same time, taxpayers are facing

increasing compliance requirements and transfer pricing audit activities worldwide. Many commentators

therefore urge governments to direct compliance and enforcement efforts to the riskiest, biggest and most

complex transactions.

3. The TPG, especially at paragraphs 3.80-3.83, 5.6-5.7 and 5.28, repeatedly emphasise that

documentation requirements should be reasonable and should not impose on taxpayers costs and burdens

disproportionate to the circumstances. The OECD initiated in 2010 a project on the administrative aspects

of transfer pricing. This project started with a survey of the transfer pricing simplification measures in

existence in OECD and Observer1 countries, which is the subject of this document. Other elements of this

project include the creation of an Internet-based platform for transfer pricing administration to facilitate

the sharing of information and experience among tax officials on the administrative aspects of transfer

pricing, including issues such as the organisation of transfer pricing audits, the development of risk

assessment techniques, the design of transfer pricing documentation requirements, the setting up of

Advance Pricing Arrangement programmes, etc.; and revisiting the existing guidance on safe harbours in

Chapter IV of the TPG with a view to possibly updating it in order to reflect the experience acquired since

1995.

1 The following countries participate as Observers in the work of the OECD‟s Committee on Fiscal Affairs:

Argentina, the People‟s Republic of China, India, the Russian Federation and South Africa.

http://www.oecd.org/dataoecd/23/12/45763692.pdf






http://www.oecd.org/department/0,3355,en_2649_45675105_1_1_1_1_1,00.html

http://www.oecd.org/department/0,3355,en_2649_45675105_1_1_1_1_1,00.html



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B - Methodology

4. A questionnaire was distributed in July 2010 to all member and Observer countries on their

existing transfer pricing simplification measures. These include safe harbours as well as other types of

simplification measures such as alleviated documentation requirements for small transactions or small and

medium-sized enterprises, streamlined dispute prevention processes, etc. Responses were received from

the following 33 countries: Argentina, Australia, Austria, Belgium, Canada, Chile, Czech Republic,

Denmark, Estonia, Finland, France, Germany, Hungary, India, Ireland, Israel, Italy, Japan, Korea,

Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Slovenia, Spain, South Africa,

Sweden, Switzerland, Turkey, the United Kingdom and the United States, as well as the European Union.

5. The main body of this document contains an analysis of the responses received and the annex

contains a compilation of the country responses which are based on the facts as of 17 March 2011.

6. Five categories of simplification measures are analysed in this survey:

Exemptions from transfer pricing rules or from transfer pricing adjustment;

Simplified transfer pricing methods, safe harbour arm‟s length ranges and safe harbour interest

rates;

Exemptions from or simplified documentation requirements;

Exemptions from or alleviated penalties;

Simplified Advanced Pricing Arrangement (“APA”) procedures or reduced APA charges.

7. There is a debate whether thin capitalisation rules such as fixed debt/equity ratios should be

regarded as transfer pricing simplification rules or rather as anti-abuse rules. Debt/equity ratios and other

measures that set a limit on the amount of a taxpayer‟s indebtedness for tax purposes are not included in

this document‟s analysis of transfer pricing simplification measures. On the other hand, measures that

simplify the determination of arm‟s length interest rates on loans between associated enterprises are

included in the analysis.

C - Key findings

8. Twenty-seven out of thirty-three respondent countries indicated that they have transfer pricing

simplification measures in place. Since some countries have several measures in place, the total number

of measures identified in this survey is fifty-eight. These simplification measures are generally evaluated

favourably by the countries concerned (see paragraphs 17 and 37).

9. Unsurprisingly, more than 70% of the available simplification measures are directed to small

and medium-sized enterprises (“SMEs”), small transactions and low-value-added services, i.e.

transactions which are deemed to carry a limited tax risk. This finding is consistent with a pragmatic risk

assessment strategy by governments and with the objective to keep compliance costs proportionate with

the size and complexity of the transaction (see paragraphs 18).2

10. The following countries indicated that they have simplification measures in favour of SMEs:

Australia, Belgium, Canada, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy,

Mexico, Netherlands, Norway, Spain, the United Kingdom and the United States. The following countries

indicated that they have simplification measures applicable to small transactions: Australia, Belgium,

2 See paragraph 3.83 of the TPG on small and medium-sized enterprises and transactions.

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Denmark, Finland, Germany, Hungary, India, Norway, Poland, Spain, Sweden and the United States (see

paragraph 19).

11. Six countries (Australia, Austria, Japan, Netherlands, New Zealand and the United States)

reported that they have measures applicable to low value-added services. Low value-added services are

generally simple transactions with limited tax revenues at stake, hence the rationale to simplify the

compliance and administrative burden in relation to them (see paragraph 19).

12. Nine countries indicated that they have simplification measures such as simplified transfer

pricing methods, safe harbour arm‟s length ranges and safe harbour interest rates. It is worth noting that

all these simplification measures are optional. This probably explains the fact that no country reported

double taxation cases that may have been caused by the application of their own or another country‟s

simplification measures (see paragraphs 21, 32 and 38).

D - Next step

13. This survey is one element of a more comprehensive project looking at how to improve the

administration of transfer pricing. In March 2011, the OECD invited comments from interested parties on:

Their experience with various forms of transfer pricing administrative simplification measures

and their effectiveness;

What the different types of regimes referred to as “safe harbours” are and how best to describe

them and differentiate among them;

The advantages and disadvantages of safe harbour rules and other forms of transfer pricing

administrative simplification, in practice and from a policy perspective;

Whether the existing guidance on safe harbours which is in Section E, Chapter IV of the TPG

should be revised, and if so how.

14. Interested parties are invited to send comments on the items listed above and on the main

findings presented in this document before 30 June 2011 in Word format to Jeffrey Owens, Director,

CTPA ([email protected]). Unless otherwise indicated by the commentators at the time of

submission, the contributions received may be posted on the OECD Internet site.

See www.oecd.org/document/15/0,3746,en_2649_33753_47265231_1_1_1_1,00.html for further

information.

15. Further information on the outcome of this consultation and on future work will be made

available on the OECD Internet site (www.oecd.org/ctp/tp).

Information on OECD and Observer countries‟ transfer pricing regimes is available in the transfer pricing

country profiles at www.oecd.org/ctp/tp/countryprofiles.

mailto:[email protected]


http://www.oecd.org/ctp/tp/countryprofiles

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ANALYSIS OF THE COUNTRY RESPONSES RECEIVED

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Q1 General transfer pricing obligation

Does the legislation in your country establish a general obligation for taxpayers to comply with the arm‟s

length principle? (Yes / No)

If yes, please indicate the year when this obligation was introduced in the legislation.

16. All 33 respondent countries indicate that their legislation establishes a general obligation to

comply with the arm‟s length principle (“ALP”).3

Yes33

No0

Q1 General transfer pricing obligation?(number of countries)

0

1

2

3

4

1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Q1 When was arm's length principle introduced?(number of countries)

3 The Swiss Legislation provides for the arm‟s length principle in article 58 of Federal Direct Tax Law of December

14, 1990 even if it does not use the exact expression arm‟s length principle.

The governing statute in the United States, 26 U.S.C. Section 482, does not explicitly mention the arm's length

principle. It contains the broader requirement that the Commissioner may allocate items of income and loss

between commonly owned or controlled taxpayers in order to clearly reflect income or prevent tax avoidance.

However, the Commissioner has issued extensive regulations under Section 482, which establish the arm's length

principle as the standard for transfer pricing adjustments.

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Q2 Scope of existing simplification measures in the transfer pricing area

Does your country have transfer pricing simplification measures in place? (Yes / No)

If yes, please indicate the scope of each simplification measures.

17. Twenty-seven out of 33 respondent countries have transfer pricing simplification measures in

place. Since some countries have several measures in place, the total number of simplification measures

reported by these countries is fifty-eight.

Yes27

No6

Q2 Simplification measures in place?

(number of countries)

Countries which have transfer pricing simplification measures: Australia, Austria, Belgium,

Canada, Denmark, Estonia, Finland, France, Germany, Hungary, India, Ireland, Israel, Italy,

Japan, Mexico, Netherlands, New Zealand, Norway, Poland, Slovenia, Spain, South Africa,

Sweden, Turkey, the United Kingdom and the United States.

Countries which do not have transfer pricing simplification measures: Argentina, Chile, Czech

Republic, Korea, Luxembourg and Switzerland.

Qualifying taxpayers and transactions

18. Among the respondent countries, measures benefitting “small and medium-sized enterprises”

(“SMEs”) account for more than one-third of the available simplification measures, and measures

benefitting “small transactions” account for almost a quarter of them.

SMEs21 [36%]

Small transactions

14 [24%]

Low value-added

services

6 [11%]

Loans

6 [10%]

Others

11 [19%]

Q2 Scope of simplification measures

(number of measures)

11

19. Countries providing simplification measures for each target category of taxpayer or transaction

are as follows:

SMEs: Australia, Belgium, Canada, Denmark, Estonia, Finland, France, Germany, Hungary,

Ireland, Italy, Mexico, Netherlands, Norway, Spain, the United Kingdom and the United States

Small transactions: Australia, Belgium, Denmark, Finland, Germany, Hungary, India, Norway,

Poland, Spain, Sweden and the United States

Low value-added services: Australia, Austria, Japan, Netherlands, New Zealand and the United

States

Loans:4 Austria, Japan, New Zealand, Slovenia, South Africa and the United States

Others: Canada, Germany, Hungary, India, Israel, Mexico, Spain and Turkey.

Types of simplification measures

20. In this document, simplification measures reported by respondent countries are classified as

follows:

Documentation: “Exemption from documentation requirements”, “Simplified documentation”

and “Exemption from disclosure requirement”

Pricing: “Simplified transfer pricing method”, “Safe harbour arm‟s length range” and “Safe

harbour interest rate”

Advance pricing arrangement (“APA”): “Simplified APA procedures” and “Reduced APA

charge”

TP rule: “Exemption from transfer pricing rules” and “Exemption from transfer pricing

adjustment”

Penalty: “Exemption from penalty” and “Alleviated penalties”.

21. Among the respondent countries, simplification measures related to documentation account for

more than half of the available simplification measures and those related to pricing account for almost a

quarter of them.

Documentation

31 [54%]

Pricing

14 [24%]

APA6 [10%]

TP rule

5 [9%]

Penalty2 [3%]

Q2 Types of simplification measures


4 This category includes simplification measures related to the determination of an arm‟s length interest rate on loans

between associated enterprises. It does not include measures such as debt/equity ratios which relate to the amount

of indebtedness.

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Countries which provide simplification measures involving each type of category are as follows:

Documentation: Australia, Belgium, Denmark, Estonia, Finland, France, Germany, Hungary,

India, Israel, Italy, Mexico, Norway, Poland, Spain, Sweden and Turkey

Pricing: Australia, Austria, Japan, Mexico, Netherlands, New Zealand, Slovenia, South Africa

and the United States

APA: Canada, France, Germany, Netherlands and the United States

TP rule: Hungary, India, Ireland, Mexico and the United Kingdom

Penalty: Canada and Spain.

22. The proportion of simplification measures related to documentation and APAs is even greater

when looking at measures for SMEs and small transactions.

Documentation23 [66%]

Pricing1 [3%]

APA6 [17%]

TP rule

4 [11%]

Penalty1 [3%]

Q2 Types of simplification measures for "SMEs" and "Small transactions"


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Q3 Absence of simplification measures

If there are no transfer pricing simplification measures in place, please indicate the reasons for the absence.

Argentina The need for adoption of transfer pricing simplification measures was not evaluated.

Chile Regarding documentation requirements under Chilean transfer pricing rules, taxpayers

are only requested to keep a registry available to the tax authority referring to their

cross-border controlled transactions as well as any documentation connected to such

transactions.

As there is no other specific documentation requirement on transfer pricing which may

cause administrative burden for taxpayers, it has not been considered necessary to

provide for simplification measures in that regard.

Czech Republic In our tax law there is no difference between taxpayers. All of them are obliged to refer

and explain their transactions according to the arm‟s length principle to the tax

authority.

Although there is no specific documentation requirement on transfer pricing in the

Czech tax law because of possible administrative burden for taxpayers, the taxpayers

can use a recommendation in respect of the scope of transfer pricing documentation

issued by the Ministry of Finance as guidance in this field. The tax authority takes

circumstances into account case by case.

Korea N/A

Luxembourg N/A

Switzerland They were simply deemed unnecessary.

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Q4 Legal basis

For transfer pricing simplification measures in place, please indicate:

When was the simplification measure introduced?

Was it introduced in the law, in regulations or in administrative guidance? Please indicate only the

highest authority. (Regulations = secondary legislation, Administrative guidance = other than the law and regulations)

23. Ever since the period of the approval of the OECD Transfer Pricing Guidelines (1995),

simplification measures have been introduced almost every year. From 2001 onward, an average of 4.8

simplification measures a year has been introduced by the group of respondent countries.

012345678

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Q4 When were simplification measures introduced?(number of measures)

24. Although most of the simplification measures are provided in the law, a number of them are

provided in administrative guidance or regulations.

23

17

19

Law

Regulations

Administrative guidance

Q4 Legal basis (number of measures)

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25. All types of simplification measures are provided by law in certain cases. By contrast, only

documentation and pricing measures are provided in regulations; administrative guidance is used only to

provide simplification measures related to documentation, pricing and APAs.


TP rule5 [22%]

Pricing2 [9%]

Penalty2 [9%]

APA1 [4%]

Q4 Simplification measures providedin the law (number of measures)


Pricing2 [12%]

Q4 Simplification measures providedin regulations (number of measures)


Pricing10 [53%]

APA5 [26%]

Q4 Simplification measures providedin administrative guidance


16

Q5 Simplification measures involving a specific transfer pricing method (“TPM”)

Does the simplification measure involve a specific transfer pricing method? (Yes / No)

If yes:

Please specify what transfer pricing method applies and how.

How and/or on what basis was that transfer pricing method set?

Has the transfer pricing method been revised since it was introduced?

26. Out of 27 respondent countries which have transfer pricing simplification measures, 7 countries

have measures which involve a specific TPM. They account for 19% of all simplification measures.

Yes7

No20

Q5 Simplification measures involvingspecific TPM?


Yes11

19%

No47

81%

Q5 Simplification measures involvingspecific TPM?


Countries which have measures involving a specific transfer pricing method: Australia, Austria,

Japan, Mexico, Netherlands, New Zealand and the United States.

17

27. Sixty-four percent of such measures involve the cost plus method,5 and 18% involve the

comparable uncontrolled price method. The category “Others” consists of measures relating to the

transactional profit split method and transactional net margin method.

Cost plus7 [64%]

CUP2 [18%]

Others2 [18%]

Q5 Breakdown of TPM


28. Simplification measures involving the cost plus method are mostly provided for low value-

added services. Simplification measures involving the comparable uncontrolled price method are all

provided for interest rates on loans.

Low value-added services

Small transactions

0% 20% 40% 60% 80% 100%

Q5 Scope of simplification measures: involving cost plus method

Loans

0% 20% 40% 60% 80% 100%

involving CUP method

Loans Other

0% 20% 40% 60% 80% 100%

involving other methods

Other methods:Transactional profit split method, and transactional net margin method

5 Including the United States‟ services cost method and associated Shared Services Arrangement.

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Q6 Optional regimes versus exclusions from obligations

Is the simplification measure an option for taxpayers to comply with the general transfer pricing

obligations or an exclusion from the general transfer pricing obligations? An option here is understood as

an alternative (presumably simpler) way to comply with a transfer pricing obligation, while an exclusion is

where the law automatically excludes some taxpayers or transactions from the scope of transfer pricing

obligations. (An option / An exclusion)

29. As for the simplification measures mentioned in the response, optional regimes account for 60%

of the simplification measures and exclusions from the scope of transfer pricing obligations account for

rest.

Optional regimes

35 [60%]

Exclusions from obligations23 [40%]

Q6 Optional regimes versusexclusions from obligations


30. Optional regimes are found among all target categories of taxpayers or transactions.6

SMEs10 [29%]

Small transactions

9 [26%]

Low value-added

services

6 [17%]

Loans6 [17%]

Others

4 [11%]

Q6 Scope of optional regimes(number of measures)

6 The United Kingdom‟s simplification measure of exempting SMEs from the basic transfer pricing rule is an

exclusion in the first instance -- i.e. it applies to all qualifying persons automatically without the need for an

election. However, (i) the taxpayer may make an (irrevocable) election for the exclusion not to apply and hence for

the basic transfer pricing rule to apply; and (ii) the Board of HMRC may give notice to a medium-sized enterprise

(but NOT to a small-sized enterprise) that would otherwise qualify for the exclusion that the basic transfer pricing

rule will apply.

19

31. By contrast, low value-added services and interest on loans do not qualify for exclusions from

obligations, but only for optional simplification measures related to pricing such as simplified transfer

pricing methods, safe harbour arm‟s length range and safe harbour interest rate.

SMEs

11 [48%]

Small

transactions

5 [22%]

Others

7 [30%]

Q6 Scope of exclusions from obligations


32. Importantly, simplification measures related to pricing such as simplified transfer pricing

methods, safe harbour arm‟s length ranges and safe harbour interest rates are all optional regimes,

regardless of the eligible taxpayers or transactions.

Eligible taxpayers /

transactions

Type of simplification measure Option /

Exclusion

Australia Low value-added services Safe harbour arm‟s length range Option

Small transactions Safe harbour arm‟s length range Option

Austria Low value-added services Safe harbour arm‟s length range Option

Loans Simplified transfer pricing method Option

Japan Low value-added services Simplified transfer pricing method Option


Mexico Others Safe harbour arm‟s length range Option

Netherlands Low value-added services Simplified transfer pricing method Option

New Zealand Low value-added services Safe harbour arm‟s length range Option


Slovenia Loans Safe harbour interest rate Option

South Africa Loans Safe harbour interest rate Option

United States Loans Safe harbour interest rate Option

Low value-added services Simplified transfer pricing method Option

20

Q7 Rules that alleviate documentation, penalties, or other compliance burdens

Does the simplification measure involve alleviated documentation requirements, alleviated penalties,

and/or other alleviated compliance burdens? (Yes / No)

If yes, please describe how they are alleviated through the simplification measures.

33. Out of 27 respondent countries which have transfer pricing simplification measures, 24

countries have measures which involve alleviated compliance burdens. They account for 83% of all

simplification measures.

Yes24

No3

Q7 Alleviated compliance requirement measures?


Yes48

83%

No10

17%

Q7 Alleviated compliance requirement measures? (number of measures)

Countries which have measures involving alleviated compliance burdens: Australia, Belgium,

Canada, Denmark, Estonia, Finland, France, Germany, Hungary, India, Ireland, Israel, Italy,

Mexico, Netherlands, Norway, Poland, Slovenia, Spain, South Africa, Sweden, Turkey, the

United Kingdom and the United States

21

34. Among the respondent countries, SMEs and small transactions together qualify for more than

70% of such measures.

SMEs21 [44%]

Small transactions

13 [27%]

Loans

3 [6%]

Others

11 [23%]

Q7 Scope of alleviated compliance requirement measures


35. Simplification measures related to documentation account for 67% of the measures alleviating

compliance burdens, followed by APAs for 13% and TP rules for 10%.

Documentation

32 [67%]

APA6 [13%]

TP rule5 [10%]

Pricing

3 [6%]

Penalty

2 [4%]

Q7 Objects of alleviation


22

Q8 Administrative practices

Are there administrative practices that simplify the application of transfer pricing in practice? For instance,

does the tax authority have criteria or thresholds below which it would not audit or adjust a controlled

transaction for transfer pricing purposes?

36. Most of the countries which responded to this question, except India and Israel, indicate that

they do not have such administrative practices. It can be observed, however, that every country has some

kind of prioritisation practices in their transfer pricing administration, as indicated in the following

responses.

Australia Generally, the ATO adopts a risk-based approach to compliance work. Taxpayers

with larger, more complex dealings and lower levels of profitability are likely to be

at greater risk of transfer pricing review.

Austria No

There are no specific criteria or thresholds available. The auditor shall exercise an

adequate discretionary power in this regard.

Belgium Not in principle. However, generally SME (or small groups) do not undergo an

in-depth transfer pricing audit although in principle they could undergo such an

audit. However, most of the SMEs are not active internationally or have only

limited international activities.

France Formally, there is no threshold below which an audit of transfer pricing may not be

initiated. In practice, though, the scope of investigations in the field of transfer

pricing is proportional to the amounts involved.

Germany Besides the simplification measurers it should be noted that the constitutional and

overriding principle of proportionality has to be respected by the tax administration.

The principle of proportionality is part of the risk management of the local tax

authorities in planning and executing a tax audit. This means that, depending on the

facts and circumstances of each individual case, an examination of transfer prices

should not be undertaken in minor cases and minor adjustments should be avoided.

But there are no fixed thresholds.

The principle of proportionality is part of the principle of investigation in Section 88

of the Fiscal Code of Germany.

India Yes. Presently taxpayers having aggregate international transactions of less than 150

million INR are normally not audited for transfer pricing purposes. Initially the

threshold limit was 50 million INR.

This limit has been fixed by way of internal instruction issued by the CBDT.

Israel Yes

New Zealand The tax authority may allocate resources to audit activities in terms of tax at risk.

There are no set criteria or thresholds other than the exercise of care and

management.

An interpretative statement on “care and management” is publicly released.

Sweden In general, Sweden does not make “minor” (depends of the size of the company)

adjustments (unless it is a matter of important principle).

23

Turkey There are no specific criteria or thresholds available in the administrative practices.

However, cross-border transactions between associated enterprises are potentially

under the risk of transfer pricing examinations.

United Kingdom No, although a general assessment of the transfer pricing risks of an MNE will

include a consideration of the level of controlled transactions and hence tax at risk.

24

Q9 Assessing the effectiveness of the simplification measures

Do you have an estimate of how many taxpayers benefit from the transfer pricing simplification

measures?

Is an assessment made of the costs and benefits implied by the transfer pricing simplification measure

from the perspective of the tax authority, e.g. lost tax revenue and saved enforcement costs?

Has the transfer pricing simplification measure achieved its objectives in terms of increased certainty

for qualifying taxpayers? Of diminished compliance burden?

37. Although estimates of the number of taxpayers benefitting from transfer pricing simplification

measures and impact studies are rarely available, such measures are generally evaluated favourably by the

respondent countries, as indicated in the following responses.

Australia Anecdotal feedback from taxpayers suggests that the administrative practice on non-

core services, in particular, has been very valuable.

This practice has also been adopted by another revenue administration.

Denmark The simplification measure has reached its objective of diminishing compliance

burden on the smallest companies, since they are exempt from the documentation

requirements. The criteria for the exemption are objective making it easy for

businesses to assess whether the simplification applies to them or not.

Estonia The simplification measure has been welcomed by the SMEs.

Finland It is quite clear that the simplification measures that concern the documentation and

small-scale transactions have diminished compliance burden.

Hungary The simplified documentation and the possibility of preparing documentation in a

foreign language are welcomed by the business community.

India The simplification measures along with the threshold limit of 50/150 million INR

have helped taxpayers in diminishing their compliance burden.

Ireland The simplification measure diminishes the compliance burden for SMEs

Japan Our simplification measures contribute not only to implement efficient

administration for tax authorities but also to increase certainty and to minimize the

compliance burden for both taxpayers and tax authorities.

Netherlands No formal assessment, but generally understood to be very little lost in tax revenue

but a significant saving made in compliance costs.

The simplification measure has achieved its objectives.

New Zealand No formal assessment, but generally understood to be very little lost in tax revenue

but a significant saving made in compliance costs.

The simplification measure is very effective.

Slovenia We are of the opinion that the recognised interest rate achieved its objectives -

diminished compliance burden and increased certainty for taxpayers that provide or

obtain loans to or from related companies. The business community has accepted the

recognised interest rate rule and we have not received proposals to amend (or

abolish) this rule.

25

South Africa The business community has never been formally engaged but informal feedback is

that the administrative practice adopted does provide certainty and does alleviate

certain compliance costs.

Sweden The Swedish Tax Agency has not measured the outcome, but has experienced that

some of the companies concerned are pleased with the simplified rules.

United Kingdom The measure achieves both increased certainty and a reduced compliance burden for

taxpayers.

United States Based on the relative lack of controversy in connection with this rule [on the safe

harbour interest rate], we believe it has provided certainty for taxpayers and has

freed audit teams to pursue bigger and more important issues. Thus, the informal

determination has been that the potential for whipsaw is outweighed by the benefit of

avoiding costly but relatively unproductive audits of loans that do not involve

taxpayers in the lending business. It is thus one of the few instances where a safe

harbour has been deemed appropriate in simplifying the administration of transfer

pricing.

The objective of the rule [on the services cost method] is to administratively take

low value services off the audit table so that both audit teams and taxpayers can

devote their resources to more significant transfer pricing or other audit issues. There

is a whipsaw potential, but such whipsaw is believed to be minimal in comparison

with the corresponding benefit gained through conservation of audit resources

26

Q10 Double taxation cases caused by simplification measures

Are you aware of any double taxation case that may have been caused by the application of your

country‟s simplification measure(s)?

Are you aware of any double taxation case that may have been caused by the application of another

country‟s simplification measure?

38. No country reported double taxation cases that may have been caused by the application of

either its own simplification measure(s) or another country‟s simplification measures.

Yes0

No33

Q10 Double taxation cases due to simplification measures?


27

Q11 Domestic transactions

Are transactions among domestic related parties also subject to the arm‟s length principle? (Yes / No)

If yes:

Do domestic related party transactions qualify for the same simplification measures as cross-border

transactions between associated enterprises?

Do domestic related party transactions qualify for other simplification measures that are not available

to cross-border transactions between associated enterprises?

39. In 20 out of 33 respondent countries, transactions among domestic related parties are subject to

the arm‟s length principle.

Yes20

No13

Q11 Are domestic transactions subject to ALP?


Countries in which domestic related party transactions are subject to the arm‟s length principle:

Austria, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Israel,

Luxembourg, Mexico, Netherlands, Norway, Poland, Slovenia,7 Spain, Turkey, the United

Kingdom and the United States

7 The arm‟s length principle among domestic related parties is used only in following cases:

- If one of the domestic related parties in the tax period for which revenue and expenses are established discloses

an uncovered tax loss carried forward from previous tax periods; or

- If one of the domestic related parties pays tax at a 0% rate or at a special rate, lower than the general tax rate in

CITA-2; or

- If one of the domestic related parties is exempt from paying tax under CITA-2.

The arm‟s length principle among domestic related parties is more an anti-avoidance issue than a transfer pricing

issue.

28

40. In 13 out of 16 countries in which the same transfer pricing obligations apply to them,8 domestic

related party transactions qualify for the same simplification measures as cross-border transactions

between associated enterprises.

Yes13

81%

No3

19%

Q11 Do domestic transactions qualify for the same simplification measures?


Countries in which domestic related party transactions qualify for the same simplification

measures: Austria, Denmark, Estonia, Hungary, Ireland, Mexico, Netherlands, Norway, Poland,

Slovenia, Spain, the United Kingdom and the United States

41. In 3 out of 20 countries in which the arm‟s length principle applies to them, domestic related

party transactions qualify for other simplification measures that are not available to cross-border

transactions between associated enterprises.

Yes3

15%

No17

85%

Q11 Do domestic transactions qualify for additional simplification measures?


Countries in which domestic related party transactions qualify for additional simplification

measures: Israel, Poland and Turkey

8 In Finland and Germany, domestic related party transactions are subject to the arm‟s length principle but not to the

same compliance requirements as international transactions. Czech Republic and Luxembourg do not have

simplification measures, whether for cross-border or for domestic related party transactions.

29

ANNEX

COUNTRY RESPONSES RECEIVED

30

ARGENTINA

Q1-1 Does the legislation in your country establish a general obligation to comply with the arm‟s


-2 References

-3 If yes, please indicate the year when this obligation was introduced in the legislation.

1. Yes

2. Articles 8, 14, 15, article without numeration added after article 15, 129 and 130 of the Income

Tax Law N° 20628

3. 1998

Q2-1 Does your country have transfer pricing simplification measures in place? (Yes / No)

-2 If yes, please indicate the scope of each simplification measures.

-3 Qualification

-4 Exception

-5 Type of the simplification measures

No

Q3-1 Absence of simplification measures

-2 If there are no transfer pricing simplification measures in place, please indicate the reasons for the

absence.

1. Yes

2. To date there was not evaluated the need for adoption of transfer pricing simplification

measures.

Q4-1 For transfer pricing simplification measures in place, please indicate:

- When was the simplification measure introduced?

-2 - Was it introduced in the law, in regulations or in administrative guidance? Please indicate only

the highest authority.

(Regulation = secondary legislation, Administrative guidance = other than Law and Regulations)

-3 References

Q5-1 Does the simplification measure involve a specific transfer pricing method? (Yes / No)

-2 If yes:

- Please specify what transfer pricing method applies

-3 - and how.

-4 - How and/or on what basis was that transfer pricing method set?

-5 - Has the transfer pricing method been revised since it was introduced?

31

Q6 Is the simplification measure an option for taxpayers to comply with the general transfer pricing

obligations or an exclusion from the general transfer pricing obligations? An option here is

understood as an alternative (presumably simpler) way to comply with a transfer pricing

obligation, while an exclusion is where the law automatically excludes some taxpayers or

transactions from the scope of transfer pricing obligations. (An option / An exclusion)

Q7-1 Does the simplification measure involve alleviated documentation requirements, alleviated

penalties, and/or other alleviated compliance burdens? (Yes / No)

-2 If yes, please describe how they are alleviated through the simplification measures.

Q8 Are there administrative practices that simplify the application of transfer pricing in practice? For

instance, does the tax authority have criteria or thresholds below which it would not audit or

adjust a controlled transaction for transfer pricing purposes?

Q9-1 - Do you have an estimate of how many taxpayers benefit from the transfer pricing simplification

measures?

-2 - Is an assessment made of the costs and benefits implied by the transfer pricing simplification

measure from the perspective of the tax authority, e.g. lost tax revenue and saved enforcement

costs?

-3 - Has the transfer pricing simplification measure achieved its objectives in terms of increased

certainty for qualifying taxpayers? Of diminished compliance burden?

Q10 - Are you aware of any double taxation case that may have been caused by the application of your


- Are you aware of any double taxation case that may have been caused by the application of

another country‟s simplification measure?

No

Q11-1 Are transactions among domestic related parties also subject to the arm's length principle?

(Yes/No)

-2 If yes:

- Do domestic related party transactions qualify for the same simplification measures as cross-

border transactions between associated enterprises?

-3 - Do domestic related party transactions qualify for other simplification measures that are not

available to cross-border transactions between associated enterprises?

No

32

AUSTRALIA



-2 References


1. Yes

2. Division 13 of the Income Tax Assessment Act 1936

3. 1982



-3 Qualification

-4 Exception


1 Yes

2 Low value-added services Small

transactions

Small transactions SMEs

3 “Non-core” services:

Activities that are not integral to the

profit-earning or economically

significant activities of the group.

They include activities that are

supportive of the group‟s main

business and are generally routine

but are not similar to activities by

which the group derives its income.

“Non-core” services may

encompass administrative services,

personnel services, management of

remuneration schemes and other

overhead activities.

De minimis

services:

The total direct

and indirect costs

of providing the

services is not

more than

A$500,000 in the

year

The aggregate amount

of a taxpayer's

transactions or

dealings with

international related

parties (including the

value of property

transferred or the

balance outstanding

on any loans) is not

greater than A$1

million

Small businesses

and entities with

low levels of

international

related party

dealings

4 - financial transactions or the

provision of insurance /

reinsurance (the practice may,

however, apply to the service of

arranging external insurance or

finance for members of the group)

- the supply of equipment or other

property for use/ rent, or

33

- research and development

activities

5 Safe harbour arm‟s length range Exemption from

disclosure requirement

Simplified

documentation9



absence.






-3 References

Low value-added

services

Small transactions Small transactions SMEs

Safe harbour arm's length range Exemption from disclosure

requirement

Simplified

documentation

1 1999 2002 1998

2 Administrative guidance Regulation Administrative

guidance

3 Taxation Ruling TR1999/1 Tax return Taxation Ruling

TR98/11


-2 If yes:


-3 - and how.



Low value-added services Small transactions Small transactions SMEs

Safe harbour arm‟s length range Exemption from

disclosure

requirement

Simplified

documentation

1 Yes No No

2 Cost plus method - -

9 In February 2011, the ATO also released a Practice Statement Law Administration PS LA 2011/1 „The ATO‟s

Advance Pricing Arrangement Program‟ which includes a new simplified APA product for taxpayers with gross

income < AUD250m; or for taxpayers where certain types of related party dealings fall below a specified AUD

threshold. This document can be found at http://law.ato.gov.au/pdf/psr/ps11_001.pdf. The Practice Statement also

includes a Self Assessment Risk Product for taxpayers to evaluate their own level of transfer pricing risk

(http://law.ato.gov.au/pdf/psr/selfassessmentriskproduct.pdf)

http://law.ato.gov.au/pdf/psr/ps11_001.pdf

http://law.ato.gov.au/pdf/psr/selfassessmentriskproduct.pdf

34

3 Services acquired from foreign associated enterprises:

Transfer prices not more than the lesser of:

- the actual charge, and

- the cost of providing the services plus a mark-up of 7.5-

10% is acceptable for services acquired from foreign

associated enterprises

Services supplied to foreign associated enterprises:

Transfer prices not less than the greater of:


- the cost of providing the services plus a mark-up of 5-

7.5% are acceptable for services supplied to foreign


- -

4 Review of common practice in consultation with industry - -

5 No - -






Low value-added

services

Small

transactions


Safe harbour arm‟s length range Exemption from disclosure

requirement

Simplified

documentation

- Option Exclusion Exclusion




Low value-

added

services

Small

transactions

Small

transactions

SMEs

Safe harbour arm‟s length

range

Exemption from

disclosure

requirement

Simplified documentation

1 No Yes Yes

2 - No disclosure

requirement

Need not create documents beyond the minimum

necessary to arrive at arm‟s length outcomes in the

context of business.

A less detailed functional analysis, combined with

an assessment of any external data available about

price and/or performance, provides a greater degree

of certainty and a reduced risk of adjustment by the

Tax Office.

35




Generally, the ATO adopts a risk-based approach to compliance work. Taxpayers with larger, more

complex dealings and lower levels of profitability are likely to be at greater risk of transfer pricing review.


measures?



costs?



1. No

2. No

3. Anecdotal feedback from taxpayers suggests that the administrative practice on non-core

services, in particular, has been very valuable. This practice has also been adopted by another

revenue administration.





No

Q11-1 Are transactions among domestic related parties also subject to the arm‟s length principle?

(Yes/No)

-2 If yes:





No

36

AUSTRIA



-2 References


1. Yes

2. Section 6, subparagraph 6 of the Income Tax Act

3. 1972



-3 Qualification

-4 Exception


1 Yes

2 Low value-added services Loans

3 - “"Routine” services

[Routine functions are functions where assets are involved only on a small

scale and where risk taking is only small]

- Intra-group ancillary services not being part of the ordinary business of

the enterprise

In case of doubt

4

5 Safe harbour arm‟s length range Simplified transfer

pricing method



absence.






-3 References

37

Low value-added services Loans

Safe harbour arm‟s length range Simplified transfer pricing method

1 Introduction with Austrian Transfer Pricing Guidelines 2010, but same treatment before by the way of

administrative practice

2 Administrative guidance

3 Paragraph 77 and 80 of Austrian Transfer Pricing

Guidelines

Paragraph 91 of Austrian Transfer Pricing

Guidelines


-2 If yes:


-3 - and how.





1 Yes Yes

2 Cost plus method Transactional profit split method

3 - Profit mark-up for routine services may be around

5-15%

- Intra-group ancillary services may be charged

without a profit mark-up

- If only the direct costs (instead of also indirect

costs) of the intra-group routine service are

available, a mark-up amounting to 5% may be

applied without further evidence in order to take

into account indirect costs as well

- It might be appropriate to split the margin

between the credit interest and the loan

interest available in unrelated banking

transactions between the related creditor and

the debtor

4 Practical experience Practical experience

5 No No








- Option Option

38






1 No No




No. There are no specific criteria or thresholds available. The auditor shall exercise an adequate

discretionary power in this regard.


measures?



costs?



1. No

2. No

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

39

BELGIUM



-2 References


1. Yes

2. Article 26 of the Income Tax Code 1992

3. 1962



-3 Qualification

-4 Exception


1 Yes

2 Small transactions SMEs

3 (Threshold is not

defined)

As defined under Belgian GAAP and the European Commission‟s

Recommendation of 6 May 2003 on the definition of micro, small and

medium-sized companies (2003/361/EC)

4

5 Simplified documentation



absence.






-3 References



1 2006


3 Paragraphs 25 to 28 of Circular letter nr. Ci.RH.421/580.456 (AOIF 40/2006) of 14 November 2006

40


-2 If yes:


-3 - and how.



No








- Option






1 Yes

2 Excessive requests for documentation have to be avoided. It can thus usefully be mentioned that the

appropriateness of asking for certain information has to be assessed in light of the factual

circumstances of each case and furthermore that the list of questions has to be adjusted to each case

and that sending out general questionnaires has to be avoided.

The requested information must consequently be limited to that which is relevant on the basis of the

specific characteristics of the enterprise and of the group to which the enterprise belongs.

Case by case approach – however with a lighter touch for SME and simple transactions.




Not in principle. However, generally SME (or small groups) do not undergo an in-depth transfer pricing

audit although in principle they could undergo such an audit. However, most of the SMEs are not active

internationally or have only limited international activities.

41


measures?



costs?



1. N/A

2. N/A

3. N/A





No


(Yes/No)

-2 If yes:





No

42

CANADA



-2 References


1. Yes

2. Section 247 of the Income Tax Act

3. 1998



-3 Qualification

-4 Exception


1 Yes

2 SMEs Others

3 Small Business Advance Pricing Arrangement

(APA) Program:

For taxpayer who has gross revenues of less than

C$50 million or a proposed covered transaction of

less than C$10 million, and

- proposes to cover a non-arm‟s length transaction

that involves either the purchase/sale of tangible

goods or the provision/receipt of routine services

Transfer pricing penalty provision with a

threshold:

The penalty does not apply where;

i) the transfer pricing adjustments does not

exceed the lesser of:

- 10% of the taxpayer‟s gross revenue for the

year, and

- C$5 million, and

ii) the taxpayer has made reasonable efforts to

determine and use arm‟s length transfer prices

4 Does not address transfers of non-routine intangible

property, tangible goods bundled with non-routine

intangibles, or complex financial transactions

5 Simplified APA procedures Exemption from penalty



absence.

43






-3 References

SMEs Others

Simplified APA procedures Exemption from penalty

1 2005 1998

2 Administrative guidance Law

3 IC94-4R (Special Release) Subsection 247(3) of the Income Tax Act


-2 If yes:


-3 - and how.



No






SMEs Others


- Option Exclusion




SMEs Others


1 Yes Yes

2 - No site visits

- Only require a functional analysis

- Reduced cost recovery amount

- Reduced reporting requirement

No penalty applied

44




No


measures?



costs?



1. No

2. N/A

3. N/A





No


(Yes/No)

-2 If yes:





No

45

CHILE



-2 References


1. Yes

2. Article 38, paragraph 3 to 8 of the Income Tax Law

3. 1997



-3 Qualification

-4 Exception


No



absence.

1. Yes

2. Regarding documentation requirements under Chilean transfer pricing rules, taxpayers are only

requested to keep a registry available to the tax authority referring to their cross-border

controlled transactions as well as any documentation connected to such transactions.

As there is no other specific documentation requirement on transfer pricing which may cause

administrative burden for taxpayers, it has not been considered necessary to provide for

simplification measures in that regard.






-3 References

46


-2 If yes:


-3 - and how.















measures?



costs?







No


(Yes/No)

-2 If yes:





No

47

CZECH REPUBLIC



-2 References


1. Yes

2. Article 23, paragraph 7 of the Income Taxes Act No. 586/1992 Coll.

3. 1993



-3 Qualification

-4 Exception


No



absence.

1. Yes

2. In our tax law there is no difference between taxpayers. All are obliged to refer and explain their

transactions according to the arm‟s length principle to the tax authority.

Although there is no specific documentation requirement on transfer pricing in the Czech tax

law because of possible administrative burden for taxpayers, taxpayers can use the

Recommendation in respect of the scope of transfer pricing documentation issued by the

Ministry of Finance as guidance in this field. The tax authority takes circumstances into account

case by case.






-3 References

48


-2 If yes:


-3 - and how.














No, there are no criteria or thresholds.


measures?



costs?







No, but it could be difficult to solve cases where the simplification measures would not correspond in

both countries.

49


(Yes/No)

-2 If yes:





1. Yes

2. -

3. No

50

DENMARK



-2 References


1. Yes

2. Section 2 of the Tax Assessment Act

3. 1998



-3 Qualification

-4 Exception


1 Yes


3 Immaterial both in scale and frequency Groups with:

- fewer than 250 employees,

and either:

- annual balance sheet less than 125 million DKK,

or

- annual turnover less than 250 million DKK

4

5 Exemption from documentation requirements



absence.






-3 References


Exemption from documentation requirements

1 2005

2 Law

3 Section 3B, paragraph 5 to 6 of the Tax Control Act

51


-2 If yes:


-3 - and how.



No








- Exclusion






1 Yes

2 No documentation requirement Transfer pricing documentation requirements apply only to the

following transactions:

- controlled transactions with persons (individuals and legal

persons) which are residents of a state without a tax treaty with

Denmark and that state is neither an EC-member state or an EEA

member state,

- controlled transactions with a permanent establishment which is

located in a state without a tax treaty with Denmark and that state

is neither an EC-member state or an EEA member state, and

- controlled transactions with a permanent establishment which is

located in Denmark provided that the taxable entity is a resident of

a state which does not have a tax treaty with Denmark and that

state is neither an EC-member state or an EEA member state




No, there are no formalised thresholds in the administrative practice.

52


measures?



costs?



1. A calculation in 2005 in connection with the creation of the rule showed that more than 30,000

taxpayers were covered by the exemption.

2. No

3. The simplification measure has reached its objective of diminishing compliance burden on the

smallest companies, since they are exempt from the documentation requirements. The criteria

for the exemption are objective making it easy for businesses to assess whether the

simplification applies to them or not.





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

53

ESTONIA



-2 References


1. Yes

2. Article 50, subsection 4 of the Income Tax Act

3. 1998



-3 Qualification

-4 Exception


1 Yes

2 SMEs

3 Resident companies and non-resident persons operating in Estonia through a permanent establishment

which, considered with related persons:

- hire fewer than 250 employees,

- had turnover in the financial year preceding the transaction of less than €50 million, and

- have consolidated balance sheet total of less than €43 million

4




absence.






-3 References

54

SMEs


1 2007

2 Regulation

3 Article 18 of the Regulation of the Minister of Finance, Regulation No. 53


-2 If yes:


-3 - and how.



No






SMEs


- Option




SMEs


1 Yes

2 No specified transfer pricing documentation requirement




No

55


measures?



costs?



1. No

2. No

3. The simplification measure has been welcomed by the SMEs.





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

56

FINLAND



-2 References


1. Yes

2. Section 31 of Act on Assessment Procedure

3. 1965



-3 Qualification

-4 Exception


1 Yes


3 The total amount of transactions between two

parties during a tax year does not exceed €500,000

Small and medium-sized enterprises as EU

definition (2003/361/EC)

4

5 Simplified documentation Exemption from documentation requirements



absence.






-3 References


Simplified documentation Exemption from documentation requirements

1 2007

2 Law

3 Sections 14a to 14c of Act on Assessment Procedure

57


-2 If yes:


-3 - and how.



No








- Option Exclusion






1 Yes Yes

2 Less extensive documentation No documentation requirement




No


measures?



costs?



58

1. According to the Business Register of Statistics Finland (statistic information from the year

2008), ninety-nine per cent of all enterprises were small enterprises, i.e. employed fewer than 50

persons. The share of medium-size enterprises employing fewer than 250 persons was 0.8 per

cent while 0.2 per cent were large enterprises employing more than 250 persons.

2. N/A

3. It is quite clear that the simplification measures that concern the documentation and small-scale

transactions have diminished compliance burden.





No


(Yes/No)

-2 If yes:





1. Yes

2. N/A (TP documentation requirement concerns only dealings with a foreign counterpart)

3. No

59

FRANCE



-2 References


1. Yes

2. Article 57 of the General Tax Code

3. 2010 in its present form



-3 Qualification

-4 Exception


1 Yes

2 SMEs SMEs

3 - Annual turnover or gross

balance sheet assets is

less than €400 million,

and

- not belonging to an

economic group

Enterprises which:

- have fewer than 250 employees and an annual turnover before tax no

greater than €50 million or a balance sheet total no greater than €43

million, and [is it a coincidence that this is the same as Estonia?]

- do not have 25% or more of their capital or voting rights held by one or

more enterprises that do not meet the conditions above

4

5 Exemption from

documentation

requirements

Simplified APA procedures



absence.






-3 References

60

SMEs SMEs

Exemption from documentation requirements Simplified APA procedures

1 2010 2006

2 Law Administrative guidance

3 Article L13 AA of the Manual on Tax Procedures Administrative Instruction 4 A-13-06


-2 If yes:


-3 - and how.



No






SMEs SMEs

Exemption from documentation requirements Simplified APA procedures

- Exclusion Option




SMEs SMEs

Exemption from

documentation requirements


1 Yes Yes

2 No documentation

requirement

- Lighten the paperwork required for filing and processing of the

request for consent

- Assist in the functional analysis and the choice of pricing method

to be used

- Conduct an experimental basis analysis of external comparability

in common databases at the request of the company

- Reduce the content of the annual compliance report required to

monitor the agreement

61




Formally, there is no threshold below which an audit of transfer pricing may not be initiated. In practice,

though, the scope of investigations in the field of transfer pricing is proportional to the amounts involved.


measures?



costs?



1. N/A

2. N/A

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes

2. No

3. No

62

GERMANY



-2 References


1. Yes, for cross-border transactions with related parties.

2. Section 1 of the Foreign Tax Code

3. 1972



-3 Qualification

-4 Exception


1 Yes

2 Small transactions Small transactions SMEs Others

3 - Less than €5 million turnover in goods

- Less than €500,000 turnover in services

Routine company:

- low risk distributor,

- low risk manufacturer, and

- low risk service provider

- contract research and development

4

5 Reduced APA charge Simplified documentation Simplified documentation



absence.






-3 References

63

Small transactions Small transactions SMEs Others

Reduced APA charge Simplified documentation Simplified

documentation

1 2006 2003 2003

2 Law Regulation Administrative

guidance

3 Section 178a, paragraph

3 of the Fiscal Code of

Germany

Regulation on the Type, Content and Scope of

Documentation within the Meaning of Section

90 paragraph 3 of the Fiscal Code of Germany

Administrative

principles - procedures


-2 If yes:


-3 - and how.



No







Reduced APA charge Simplified documentation Simplified documentation

- Option Option Option





Reduced APA charge Simplified documentation Simplified documentation

1 Yes Yes Yes

2 Reduced amount of

fees to be charged

Duty to prepare written documentation is relieved. The taxpayer may provide

all information orally and present only available, existing documents.




64

Besides the simplification measurers it should be noted that the constitutional and overriding principle of

proportionality has to be respected by the tax administration. The principle of proportionality is part of the

risk management of the local tax authorities in planning and executing a tax audit. This means that,

depending on the facts and circumstances of each individual case, an examination of transfer prices

should not be undertaken in minor cases and minor adjustments should be avoided. But there are no fixed

thresholds.

The principle of proportionality is part of the principle of investigation in Section 88 of the Fiscal Code of

Germany.


measures?



costs?



1. No

2. N/A

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes (if a domestic transaction leads to a hidden profit distribution)

2. N/A (The standard documentation requirements do not apply to domestic transactions.)

3. No

65

HUNGARY



-2 References


1. Yes

2. Article 18, paragraph (1) of Act LXXXI of 1996 on Corporate Tax and Dividend Tax

3. 1992



-3 Qualification

-4 Exception


1 Yes

2 Small

transactions

SMEs SMEs Others Others

3 Turnover based

on agreements

does not exceed

HUF 50 million

at arm‟s length

price (excluding

VAT) in the

period from the

signing of the

agreement to the

last day of the

fiscal year

- SMEs in an

unprivileged market

position due to their

size, who establish

affiliated companies

for the purpose of

joint purchases and

sales (certain retail

entities)

[SMEs:

An enterprise which:

- employs fewer than

250 persons, and

- has annual turnover

not exceeding the

HUF equivalent of

50 million Euros

and/or annual

balance sheet total

not exceeding the

HUF equivalent of

43 million Euros]

Small enterprise:



50 persons, and


and/or annual

balance sheet total

which does not

exceed the HUF

equivalent of 10

million Euros

Micro enterprise:



10 persons, and


and/or annual

balance sheet total

which does not

exceed the HUF

equivalent of 2

million Euros

- Public-benefit

and priority

public-benefit

non-profit

business

associations

- Taxpayers in

which the state

directly or

indirectly has

majority

control

- Taxpayers on

their

agreement

concluded

with an

individual as

other than a

sole

entrepreneur

- Transactions

conducted on

the stock

exchange or

at an

officially set

price (with

the exception

of cases

involving

insider

trading, unfair

manipulation

66

of prices, or

of prices

applied

violating the

laws)

4 The following

enterprise shall not

be classified as a

SME:

- Any enterprise in

which the state or

any local self-

government holds,

either directly or

indirectly and either

solely or jointly, 25

percent or more of

the capital or voting

rights

5 Simplified

documentation

Exemption from

transfer pricing

adjustment




absence.






-3 References

Small transactions SMEs SMEs Others Others

Simplified

documentation

Exemption from

transfer pricing

adjustment


1 2004 2004 2004

2 Regulation Law Regulation

3 Article 6, paragraph

(1) of Decree of

Minister of Finance

no.22/2009 (X.16.)

Article 18, paragraph

(3) of Act LXXXI of

1996 on Corporate Tax

and Dividend Tax

Article 18, paragraph (5) of

Act LXXXI of 1996 on

Corporate Tax and Dividend

Tax

Article 1, paragraph

(3) a) and (4) of

Decree of Minister

of Finance

no.22/2009 (X.16.)

67


-2 If yes:


-3 - and how.



No







Simplified

documentation

Exemption from

transfer pricing

adjustment







Simplified

documentation

Exemption from

transfer pricing

adjustment


1 Yes Yes Yes

2 No benchmarking

required

No benchmarking

required

No documentation requirement




No


measures?



costs?



68

1. No

2. No

3. The simplified documentation and the possibility of preparing documentation in a foreign

language are welcomed by the business community.





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

69

INDIA



-2 References


1. Yes

2. Sections 92 to 92F of the Income Tax Act, 1961

Rules 10A to 10E of the Income Tax Rules, 1962

3. 2002



-3 Qualification

-4 Exception


1 Yes

2 Small transactions Others Others

3 Aggregate value of

international transactions does

not exceed 10 million INR

International transactions which

continue to have effect over

more than one previous year

The difference between the arm‟s

length price and the transfer price

does not exceed such percentage

as may be notified by Government

in this behalf of the latter

4 There is no significant change

in facts

5 Exemption from

documentation requirements

Simplified documentation Exemption from transfer pricing

adjustment



absence.






-3 References

70

Small transactions Others Others

Exemption from documentation

requirements


adjustment

1 2002 2002 2002

2 Regulation Law

3 Rule 10D(2) of the Income Tax

Rules, 1962

Rule 10D(4) of the Income Tax

Rules, 1962

Section 92C(2) of the Income

Tax Act, 1961


-2 If yes:


-3 - and how.



No








requirements

Simplified

documentation

Exemption from transfer pricing

adjustment






Exemption from

documentation

requirements


adjustment

1 Yes Yes Yes

2 No documentation

requirement

(Not subject to penalty)

Fresh documentation need not be

maintained separately in respect of

each previous year

The transfer price shall be

deemed to be the arm‟s length

price

71




Yes

Presently taxpayers having aggregate international transactions of less than 150 million INR are normally

not audited for transfer pricing purposes. Initially the threshold limit was 50 million INR.

This limit has been fixed by way of internal instruction issued by the CBDT.


measures?



costs?



1. No

2. No

3. The simplification measures along with the threshold limit of 50/150 million INR have helped

taxpayers in diminishing their compliance burden.





No


(Yes/No)

-2 If yes:





No

72

IRELAND



-2 References


1. Yes

2. Part 35A of the Taxes Consolidation Act 1997

3. 2010



-3 Qualification

-4 Exception


1 Yes

2 SMEs

3 Small and medium enterprises as defined in the Annex to European Commission recommendation

2003/361/EC of 6 May 2003

4

5 Exemption from transfer pricing rules10



absence.






-3 References

10

However, the arm‟s length principle which is part of general tax law such as, for instance, “wholly and

exclusively” test in Section 81(2)(a) of the Taxes Consolidation Act 1997 which denies a deduction for an amount

of a payment between connected parties in excess of the arm‟s length amount, continues to apply.

73

SMEs

Exemption from transfer pricing rules

1 2010

2 Law

3 Section 835E of the Taxes Consolidation Act 1997


-2 If yes:


-3 - and how.



No






SMEs


- Exclusion




SMEs


1 Yes

2 Transfer pricing rules do not apply




No

74


measures?



costs?



4. No

5. No

6. Yes. it diminishes the compliance burden for SME's.





No


(Yes/No)

-2 If yes:





7. Yes

8. Yes

9. No

75

ISRAEL



-2 References


1. Yes

2. Section 85A of the Income Tax Ordinance

3. 2006



-3 Qualification

-4 Exception


1 Yes

2 Others

3 “One-time transaction”:

An international transaction that is characterised by having very low frequency and of low volume

both on an absolute basis and a relative basis, when compared to other transactions made by the

taxpayer;

“Low volume” is considered an amount that satisfies both of the following conditions:

- The sum does not exceed 10 percent of the total income of the taxpayer from the same area (e.g.

business, interest income, etc.) from parties that have no “special relation”

- The sum is no greater than 4 million New Israeli Shekel (approximately 1M$)

4




absence.






-3 References

76

Others


1 2006

2 Regulation

3 Income Tax Regulations (Determination of Market Conditions), Reg. number 4


-2 If yes:


-3 - and how.



No






Others


- Option




Others


1 Yes

2 A full transfer pricing study (a survey of market conditions) does not need to be performed for a

qualified transaction that has been approved as such by a tax assessment office.




Yes

77


measures?



costs?



1. Yes

2. No

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes

2. No

3. Section 3(j) of the Income Tax Ordinance provides a simplification measure for local inter-

company loan by setting an interest rate that is updated in the end of each year.

78

ITALY



-2 References


1. Yes

2. Article 110, paragraph 7 of the Consolidated Tax Code

3. 1986



-3 Qualification

-4 Exception


1 Yes

2 SMEs

3 Total turnover or revenue does not exceed 50 million Euros

4




absence






-3 References

SMEs


1 2010

2 Law

3 Article 26 of the law decree No. 78 of May 31, 2010

79


-2 If yes:


-3 - and how.



No






SMEs


- Option




SMEs


1 Yes

2 With respect to the two taxable periods following the one the prepared transfer pricing

documentation relates to, SMEs are not required to update the benchmark analysis in case the

comparability analysis is based on publicly available information sources and insofar as the

comparability factors do not incur substantial changes during the above mentioned taxable periods.




No


measures?



costs?



80

1. No

2. No

3. N/A





No


(Yes/No)

-2 If yes:





No

81

JAPAN



-2 References


1. Yes

2. Article 66-4 of the Special Taxation Measures Law (in relation to Corporation Tax Law)

3. 1986



-3 Qualification

-4 Exception


1 Yes


3 Service transactions between associated enterprises

rendered or provided accompanying original

business activities of such enterprises, for which

comparable transactions both internal and external

cannot be found

Transactions of lending and borrowing money

between associated enterprises except for

financial institutions, for which comparable

transactions both internal and external cannot be

found

4

5 Simplified transfer pricing method Simplified transfer pricing method



absence.






-3 References


Simplified transfer pricing method Simplified transfer pricing method

1 2001


3 Article 2-7 and 2-10 of the Commissioner‟s Directive on the Operation of Transfer Pricing

82


-2 If yes:


-3 - and how.





1 Yes Yes

2 Cost plus method CUP

3 The total amount of the cost for providing the

services is deemed to be an arm‟s length price

It is permitted to deem the interest rate

calculated as follows as the arm‟s length

interest rate:

- the interest rate that would normally be

applied to a loan, assuming that the lender

of the foreign affiliated transaction

borrowed from a non-affiliated bank under

similar conditions in terms of currency,

borrowing date and borrowing period, or

- the interest rate that would normally be

earned on the funds involved in the foreign

affiliated transaction, assuming that they

were invested in government securities or

the like under similar conditions in terms of

currency, transaction date and transaction

period (excluding cases where the interest

rate listed above is applicable)

4

5 No No








- Option Option

83




No




No


measures?



costs?



1. No

2. No

3. Our simplification measures contribute not only to implement efficient administration for tax

authorities but also to increase certainty and to minimize the compliance burden for both

taxpayers and tax authorities.





No


(Yes/No)

-2 If yes:





No

84

KOREA



-2 References


1. Yes

2. Article 4 of the Law for the Coordination of International Tax Affairs (LCITA)

3. 1995



-3 Qualification

-4 Exception


No11



absence.

1. Yes

2. N/A






-3 References

11

There is a provision in the LCITA in which a qualified taxpayer is not required to attach a certain schedule to its

tax return by which a taxpayer does not need to disclose its transfer pricing method and reasons for adopting that

particular method to the tax authority at the time of filing a tax return. This treatment is available in following

cases:

- If the total amount of international transactions of goods and that of international transactions of services of the

taxpayer for the taxable year concerned is 5 billion won or less and 500 million won or less, respectively; or

- If, for each foreign associated company, the amount of international transactions of goods and that of

international transactions of services of the taxpayer for the taxable year concerned is 1 billion won or less and

100 million won or less, respectively.

85


-2 If yes:


-3 - and how.















measures?



costs?







No


(Yes/No)

-2 If yes:





No

86

LUXEMBOURG



-2 References


1. Yes

2. Article 164, section 3 of the Income Tax Law

3. 1969



-3 Qualification

-4 Exception


No



absence.

1. Yes

2. N/A






-3 References


-2 If yes:


-3 - and how.



87













measures?



costs?







No


(Yes/No)

-2 If yes:





1. Yes

2. -

3. No

88

MEXICO



-2 References


1. Yes

2. Articles 86-XII, 86-XV, 106 and 215 of the Income Tax Law

Article 18-III of the Flat Tax Law

3. 1997



-3 Qualification

-4 Exception


1 Yes

2 SMEs SMEs Others Others

3 Small individual

taxpayers:

- with business

activities to sell or

render services to the

general public, and

- whose income from

business activities

and interest does not

exceed 2 million

pesos ($161,500)

Corporations:

- revenue in the preceding fiscal

year did not exceed 13 million

pesos (about $1,040,000), and


year from the rendering of

professional services did not

exceed 3 million pesos (about

$240,000)

Individuals:


year did not exceed 13 million

pesos (about $1,040,000)

Foreign resident

owners of

maquiladoras

Taxpayers who are

required to file the

statutory audit

report (Dictamen

Fiscal)

4 Transactions between residents of

Mexico and companies or entities

located or resident in territories

with preferential regimes

5 Exemption from

transfer pricing rules


requirements

Safe harbour arm‟s

length range

Simplified

documentation

89



absence.






-3 References


Exemption from



requirements


length range

Simplified

documentation

1 2002 1994 2010

2 Law Law Regulation

3 Article 106 of the

Income Tax Law

Article 86-XII, 2nd paragraph of

the Income Tax Law

Article 133-XI of the Income Tax

Law

Article 216 Bis of

the Income Tax

Law

Presidential

Decree, released in

June 2010


-2 If yes:


-3 - and how.




Exemption

from

transfer

pricing

rules

Exemption

from

documentation

requirements

Safe harbour arm‟s length range Simplified

documentation

1 No No Yes No

2 - - Transactional net margin method -

3 - - Maquiladoras must declare a taxable profit

representing the greater of:

- 6.5% of total costs and expenses (cost base), or

- 6.9% of maquiladora assets (asset base) used in the

maquiladora operation (including assets owned by

foreign residents or related parties)

-

4 - - A settlement was made with foreign tax authorities. -

5 - - The PLI has been revised once from 5% of all assets

(including foreign-owned) to a scheme to assign the

greater of 6.5% of total costs and expenses (cost

base) or 6.9% of maquiladora assets (asset base) used

in the maquiladora operation (including assets owned

by foreign residents or related parties).

-

90







Exemption from



requirements


length range

Simplified

documentation

- Exclusion Exclusion Option Option





Exemption

from transfer

pricing rules

Exemption from

documentation

requirements

Safe harbour arm‟s length range Simplified documentation

1 Yes Yes Yes Yes

2 Transfer

pricing rules

do not apply

No

documentation

requirement

No documentation requirement

(An advise must be filed to

authorities regarding the

adherence to the measure)

- The requirement to file the

statutory audit report

(Dictamen Fiscal) is waived

- No requirement to file the

transfer pricing questionnaire

fulfilled by a Mexican CPA




N/A


measures?



costs?



1. No

2. N/A

3. N/A

91





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

92

NETHERLANDS



-2 References


1. Yes

2. Article 8b, paragraph 1 of the Corporate Income Tax Law

3. 2002



-3 Qualification

-4 Exception


1 Yes

2 SMEs Low value-added services

3 - Fiscal balance total is less

than €5 million, and

- Less than 50 employees

(average)

“Support” services:

In general, services with respect to bookkeeping, legal affairs, tax

matters and personnel.

4 Where,

- activities are rendered that make up or which add more than marginal

value to the primary business operations, or

- the respective services are performed on behalf of non-associated

parties on more than an incidental basis

5 Simplified APA procedures Simplified transfer pricing method



absence.






-3 References

93

SMEs Low value-added services

Simplified APA procedures Simplified transfer pricing method

1 2004 2004

2 Administrative guidance Administrative guidance

3 APA Decree IFZ 2004/124M Paragraph 2 of the Decision of 21 August 2004, No. IFZ2004/680M


-2 If yes:


-3 - and how.




Simplified APA

procedures

Simplified transfer pricing method

1 No Yes

2 - Cost plus method

3 - At the taxpayer‟s advance request, all relevant actual costs instead of an arm‟s

length consideration can be charged for support services

4 -

5 -







Simplified APA procedures Simplified transfer pricing method

- Option Option





Simplified APA procedures Simplified transfer pricing

method

1 Yes No

2 Can apply for assistance from the tax administration for a search for

comparables

-

94




No, other than mentioned in reply to previous questions.


measures?



costs?



1. No

2. No (No formal assessment, but generally understood to be very little lost in tax revenue but a

significant saving made in compliance costs.)

3. Yes





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

95

NEW ZEALAND



-2 References


1. Yes

2. Section GC 6 to 14 of the Income Tax Act 2007

3. 1997



-3 Qualification

-4 Exception


1 Yes


3 - Non-core services (relating to activities that are not integral to the

profit-earning or economically significant activities of the group)

- Services with costs below a de minimis threshold of NZ$600,000

Low value loans with a

principal less than NZ$2

million

4

5 Safe harbour arm‟s length range Simplified transfer pricing

method



absence.






-3 References

96



1 2000 2008

2 Administrative guidance Administrative guidance

3 Paragraphs 557 to 567 of Inland Revenue Transfer Pricing

Guidelines

Practice Issues - Financing Costs


-2 If yes:


-3 - and how.





1 Yes Yes

2 Cost plus method CUP

3 Transfer prices not more than the lesser of:


- the cost of providing the services plus a mark-up of 7.5-

10%

are acceptable for services acquired from foreign associated

enterprises

Transfer prices not less than the greater of:


- the cost of providing the services plus a mark-up of 5-

7.5%

are acceptable for services supplied to foreign associated

enterprises

300 basis points (3%) over the relevant

base indicator is considered to be

broadly indicative of an arm‟s length

rate, in the absence of a readily

available market rate for a debt

instrument with similar terms and risk

characteristics

4 Wide-ranging review of prevailing practices and mark-ups Benchmarking of BBB rated loans (the

credit rating for most international

groups operating in New Zealand)

5 No No








- Option Option

97




No




The tax authority may allocate resources to audit activities in terms of tax at risk. There are no set criteria

or thresholds other than the exercise of care and management.

An interpretative statement on “care and management” is publicly released.


measures?



costs?



1. No

2. No (No formal assessment, but generally understood to be very little lost in tax revenue but a

significant saving made in compliance costs.)

3. Yes - very effective





No


(Yes/No)

-2 If yes:





No

98

NORWAY



-2 References


1. Yes

2. Section 13-1 of the Tax Act

3. 1911



-3 Qualification

-4 Exception


1 Yes


3 - Transactions which take place on a stand-alone

basis, are of limited economic significance and

do not form part of the core business of the

enterprise

- Enterprises which have controlled transactions

with an aggregate fair value of less than 10

million kroner during the tax year, and have

accounts outstanding with associated companies

or entities in an amount of less than 25 million

kroner as per the end of the tax year

Enterprises which, together with associated

enterprises:

- have fewer than 250 employees,

and either:

- sales income not exceeding 400 million kroner,

or

- total assets not exceeding 350 million kroner

4 Not apply to:

- enterprises which are liable to pay special tax

according to the Petroleum Taxation Act., and

- controlled transactions entered into with an

associated enterprise which is resident in a state

from which Norway cannot demand information

concerning the income and wealth of such other

contracting party pursuant to an international law

agreement


99



absence.






-3 References



1 2008

2 Law

3 Section 4-12 of the Tax Administration Act


-2 If yes:


-3 - and how.



No








- Exclusion






1 Yes

2 No documentation requirement

100

Q8 Are there administrative practices that simplify the application of transfer pricing in practice?

For instance, does the tax authority have criteria or thresholds below which it would not audit or


No


measures?



costs?



1. No

2. No

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

101

POLAND



-2 References


1. Yes

2. Article 11 of the Corporate Income Tax Act (respectively Art. 25 of the Personal Income Tax

Act)

3. 1993



-3 Qualification

-4 Exception


1 Yes

2 Small transactions

3 The total amount (or its equivalent) resulting from the contract or the total amount, actually paid in a

tax year, of performances enforceable in the tax year is lower than the equivalent of:

- €100,000 if the value of the transaction does not exceed 20% of the initial capital,

- €30,000 in the case of performance of services, sale or making available intangible assets and legal

values;

- €50,000 in the remaining cases

4 Transactions in relation to which the payment of sums due as a result of such transactions are made

directly or indirectly for the benefit of an entity having its place of residence, seat or board of

management within a territory of or in a country admitting detrimental tax competition if the total

amount (or its equivalent) resulting from the contract or the total amount, actually paid in a tax year, of

performances enforceable in the tax year is higher than the equivalent of €20,000




absence.






-3 References

102

Small transactions


1 2001

2 Law

3 Article 9a of the Corporate Income Tax Law (respectively Art. 25a of the Personal Income Tax Law)


-2 If yes:


-3 - and how.



No






Small transactions


- Exclusion




Small transactions


1 Yes

2 No documentation requirement





measures?



costs?



103





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. Yes

104

SLOVENIA



-2 References


1. Yes

2. Articles 16 to 19 of the Corporate Income Tax Act (CITA-2)

3. 2005



-3 Qualification

-4 Exception


1 Yes

2 Loans

3 Interest is in line with the “tax-recognised interest rate” published by the Ministry of Finance prior to

the beginning of the tax period to which it applies

4

5 Safe harbour interest rate



absence.






-3 References

Loans

Safe harbour interest rate

1 2005 (In 2007 it was modified - calculation of the “tax recognised interest rate” has changed)

2 Law

3 Article 19 of the Corporate Income Tax Act

105


-2 If yes:


-3 - and how.



No






Loans


- Option




Loans


1 Yes

2 Interest is recognised as arm‟s length for tax purposes if it is in line with the “tax-recognised interest

rate” published by the Ministry of Finance prior to the beginning of the tax period to which it applies,

considering the fact that the interest rate in question has been or would have been agreed in the market

between non-related parties. If the taxpayer interest rate is not in line with the tax-recognised interest

rate then the taxpayer has the possibility to prove that the interest rate used is generally in line with the

ALP.




No


measures?



costs?



106

1. Yes

2. To some extent - Yes

3. We are of the opinion that the recognised interest rate achieved its objectives - diminished

compliance burden and increased certainty for taxpayers that provide or obtain loans to or from

related companies. The business community has accepted the recognised interest rate rule and

we have not received proposals to amend (or abolish) this rule.





No


(Yes/No)

-2 If yes:





1. The arm‟s length principle among domestic related parties is used only in following cases:

- If one of the domestic related parties in the tax period for which revenue and expenses are

established discloses an uncovered tax loss carried forward from previous tax periods; or

- If one of the domestic related parties pays tax at a 0% rate or at a special rate, lower than the

general tax rate in CITA-2; or

- If one of the domestic related parties is exempt from paying tax under CITA-2.

The arm‟s length principle among domestic related parties is more an anti-avoidance issue than

a transfer pricing issue.

2. Yes

3. No

107

SOUTH AFRICA



-2 References


1. Yes

2. Section 31 of the Income Tax Act 58 of 1962

3. 1995



-3 Qualification

-4 Exception


1 Yes

2 Loans

3 Intra-group cross-border loans (Inbound)

4

5 Safe harbour interest rate



absence.






-3 References

Loans


1 1996


3 Practice Note 212

12

As of 1 October 2011 a revised section 31 of the Income Tax Act comes into effect. Practice Note 2 is also

currently being rewritten as a new Interpretation Note to support the revised legislation.

108


-2 If yes:


-3 - and how.



No






Loans


- Option




Loans


1 Yes

2 An interest payment of prime plus 2% for South African Rand (ZAR) denominated loans and LIBOR

plus 2% for foreign denominated loans are allowed.




No


measures?



costs?



109

1. No. It is however considered that the majority of taxpayers will tend to stay within the

parameters of the Practice note.

2. No

3. The business community has never been formally engaged but informal feedback is that the

administrative practice adopted does provide certainty and does alleviate certain compliance

costs.





No


(Yes/No)

-2 If yes:





No

110

SPAIN



-2 References


1. Yes

2. Article 16, paragraph 2 of the Corporate Income Tax Law

3. 1978



-3 Qualification

-4 Exception


1 Yes

2 Small transactions Others SMEs

3 The total amount of

related transaction

is less than:

- €250,000, or

- €100,000 when

taxpayer‟s

turnover is less

than €10 million

(SME)

Transactions:

- between entities within the scope of the tax

consolidation regime regulated in Chapter VII,

Title VII of the Corporate Tax Law

- between the so called “Economic Interest

Association” (AIE: specific associations

sharing economic interests) or “Temporary

Consortiums” (UTEs) and their members or

other entities participating in the same tax

consolidation group

- performed in the context of public share

offerings or takeover bids

- performed between credit institutions meeting

the requirements approved by the Bank of

Spain

Turnover is less than €10

million

4 There are some

exceptions

5 Exemption from documentation requirements Simplified

documentation

Alleviated

penalties

111



absence.






-3 References

Small transactions Others SMEs

Exemption from documentation requirements Simplified documentation Alleviated penalties

1 2009

2 Law (Total transactions less

than €100,000 when taxpayer

is an SME)

Regulation (Total transactions

less than €250,000)

Regulation Law

3 Article 16 of the Corporate

Income Tax Law

Article 18 of the Corporate

Income Tax Regulation

Article 18 of the Corporate Income Tax

Regulation

Article 16 of the Corporate

Income Tax Law


-2 If yes:


-3 - and how.



No








- Exclusion Option Exclusion

112






1 Yes Yes Yes

2 No documentation requirement - Required (only) to

identify other party of

the transaction, the

method and the range of

values used

- No documentation

obligation at the group

level

Final amount of the

penalty is limited to the

smaller of:

- 10% of their total

amount of related

transactions, or

- 1% of the enterprise

net turnover




No


measures?



costs?



1. No

2. No

3. N/A





No

113


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

114

SWEDEN



-2 References


1. Yes

2. Chapter 14, section 19 of the Income Tax Act

3. 1928



-3 Qualification

-4 Exception


1 Yes

2 Small transactions

3 Intra-group transactions of minor value:

“Transactions of minor value” refers to:

- transactions with goods where the total market value does not exceed 630 “base amounts” (approx.

€2.5 million) per enterprise within the enterprise group, or

- other transactions (e.g. services and loans) where the total market value does not exceed 125 “base

amounts” (approx. €500,000) per enterprise within the enterprise group

4 Not applicable to transactions which involve sale and purchase of intangible property




absence.






-3 References

115

Small transactions


1 2007

2 Regulation

3 Section 10 of Swedish Tax Agency‟s regulations on documentation of transfer pricing between



-2 If yes:


-3 - and how.



No






Small transactions


- Option




Small transactions


1 Yes

2 - In-depth information is not required, i.e. it is on a more general level

- A full comparability analysis is not required if it has not been prepared, however, a general

explanation is recommended

The simplified documentation shall contain a description of:

- the legal structure of the enterprise group as well as the business structure and the business of the

enterprise and the enterprise group,

- the counterparty in the intra-group transaction and information about its business,

- the transactions in question, stating the type, scope and value,

- the method used to establish that the transfer pricing of the intra-group transactions is on an arm‟s

length basis, and

- any comparable transactions that may have been used.

116




In general, Sweden does not make “minor” (depends of the size of the company) adjustments (unless it is

a matter of important principle).


measures?



costs?



1. No

2. No

3. The Swedish Tax Agency has not measured the outcome, but has experienced that some of the

companies concerned are pleased with the simplified rules.





No


(Yes/No)

-2 If yes:





No

117

SWITZERLAND



-2 References


1. The Swiss Legislation provides for the arm‟s length principle in article 58 of Federal Direct Tax

Law of December 14, 1990 even though it does not use exactly the expression arm‟s length

principle.

2. Article 58 of Federal Direct Tax Law of December 14, 1990

3. 1940



-3 Qualification

-4 Exception


No



absence.

1. Yes

2. They were simply been deemed unnecessary.






-3 References


-2 If yes:


-3 - and how.



118













measures?



costs?







No


(Yes/No)

-2 If yes:





No. For intercantonal profit allocation between associated companies the Swiss High Court has defined

specific rules. These rules do not necessarily comply with the arm‟s length principle.

119

TURKEY



-2 References


1. Yes

2. Article 13 of the Corporate Income Tax Law

3. 2007



-3 Qualification

-4 Exception


1 Yes

2 Others

3 “Personal income taxpayers”:

Taxpayers keeping their books on balance sheet basis or operating account basis

(Article 41 of the Personal Income Tax Law)

4




absence.






-3 References

Others


1 2007

2 Regulation

3 Cabinet decree and general communiqué

120


-2 If yes:


-3 - and how.



No






Others


- Exclusion




Others


1 Yes

(Although the simplification measures alleviate documentation requirements, they do not alleviate

penalties, and/or other compliance burdens.)

2 Exemption from documentation requirements, such as submitting a Transfer Pricing Form as an

attachment to personal income tax return and preparing an Annual Transfer Pricing Report for their

domestic and cross-border transactions with related parties.




No (There are no specific criteria or thresholds available in the administrative practices. However, cross-

border transactions between associated enterprises are potentially under the risk of transfer pricing

examinations.)

121


measures?



costs?



1. N/A

2. N/A

3. N/A





No


(Yes/No)

-2 If yes:





1. Yes

2. No (In principle, both personal and corporate income taxpayers are within the scope of transfer

pricing legislation for their domestic and cross-border transactions with related parties. However,

as mentioned above as a response to Q-2, personal income taxpayers are only exempted from

documentation requirements. In this respect, there are no simplification measures for corporate

taxpayers in terms of cross-border transactions with related parties.)

3. Partly Yes (While corporate taxpayers registered with Large Taxpayers Office must prepare an

Annual Transfer Pricing Report for both their domestic and cross-border transactions with

related parties in a fiscal year, corporate taxpayers other than large taxpayers must prepare an

Annual Transfer Pricing Report for only their cross-border transactions with related parties.)

122

UNITED KINGDOM



-2 References


1. Yes

2. Section 147 of the Taxation (International and other provisions) Act 2010

3. 1915



-3 Qualification

-4 Exception


1 Yes

2 SMEs

3 Small and medium enterprises defined in the Annex to European Commission recommendation

2003/361/EC of 6 May 2003

4

5 Exemption from transfer pricing rules



absence.






-3 References

SMEs


1 2004

2 Law

3 Section 166 of the Taxation (International and other provisions) Act 2010

123


-2 If yes:


-3 - and how.



No






SMEs


- Exclusion

[The simplification measure of exempting small and medium-sized enterprises from the basic transfer

pricing rule is an exclusion in the first instance - i.e. it applies to all qualifying persons automatically

without the need for an election.

However:

- The taxpayer may make an (irrevocable) election for the exclusion not to apply and hence for the

basic transfer pricing rule to apply.

- The Board of HMRC may give notice to a medium-sized enterprise (but NOT to a small-sized

enterprise) that would otherwise qualify for the exclusion that the basic transfer pricing rule will

apply.]




SMEs


1 Yes

2 Transfer pricing rules do not apply




No (Although a general assessment of the transfer pricing risks of an MNE will include a consideration of

the level of controlled transactions and hence tax at risk)

124


measures?



costs?



1. N/A

2. N/A

3. Yes, the measure achieves both increased certainty and a reduced compliance burden for

taxpayers.





No


(Yes/No)

-2 If yes:





1. Yes

2. Yes

3. No

125

UNITED STATES



-2 References


1. The governing statute, 26 U.S.C. Section 482, does not explicitly mention the arm‟s length

principle. It contains the broader requirement that the Commissioner may allocate items of

income and loss between commonly owned or controlled taxpayers in order to clearly reflect

income or prevent tax avoidance. However, the Commissioner has issued extensive regulations

under Section 482, which establish the arm‟s length principle as the standard for transfer pricing

adjustments.

2. Section 482 of the Internal Revenue Code

Treasury Regulation Section 1.482-1(b)(1)

3. 1935



-3 Qualification

-4 Exception


1 Yes

2 Loans Low value-added services Small transactions SMEs

3 Loans between

associated

enterprises

Low margin services:

- Services that have a median

comparable mark-up of 7% or less or

are listed in Rev. Proc. 2007-13,

- Services that are not listed as excluded

activities,

- Services that do not contribute

significantly to key competitive

advantages, core capabilities, or

fundamental risks of success or failure,

and

- Services for which certain

documentation requirements are met

Transactions

potentially

covered by an

APA that, in the

aggregate, have a

value no greater

than $50 million

annually (or $10

million in the case

of intangible

property)

Taxpayers

potentially

undertaking an

APA with gross

income of $200

million or less

4 Not available to

taxpayers that are in

the business of

making loans or for

126

loans that are

expressed in a

foreign currency

5 Safe harbour

interest rate

Simplified transfer pricing method:

Services Cost Method (SCM), and

associated Shared Services Arrangement

(SSA) for SCM transactions




absence.






-3 References

Loans Low value-added services Small transactions SMEs

Safe harbour interest rate Simplified transfer pricing method:


associated Shared Services

Arrangement (SSA) for SCM

transactions


1 The original version of

the rule was finalized in

1968 and was modified

several times over the

years. The current version

of the rule has been

unchanged since 1994.

The predecessor of the SCM was

established in 1968 but was revised

materially in 2006.

1996

2 Regulation Regulation Administrative guidance

3 Treasury Regulation

Section 1.482-2(a)(2)(iii)

Treasury Regulation Section 1.482-

9

Revenue Procedure 2006-9


-2 If yes:


-3 - and how.



127

Loans Low value-added services Small

transactions

SMEs

Safe harbour

interest rate

Simplified transfer pricing method:

Services Cost Method (SCM), and associated Shared Services

Arrangement (SSA) for SCM transactions

Simplified APA

procedures

1 No Yes No

2 - Services cost method (SCM) and associated Shared Services

Arrangement (SSA)

-

3 - Services cost method (SCM):

Taxpayers may choose to price the services at cost rather than

the actual arm‟s length price.

Cost reimbursement is deemed the arm‟s length price if the

taxpayer properly chooses to apply.

Shared services arrangement (SSA): If a taxpayer elects to use

the SCM, it may further elect to use an SSA. An SSA permits

cost allocation on the basis of reasonably anticipated benefits

under a relaxed standard.

Specifically, the Commissioner must respect the allocation basis

if the taxpayer only “reasonably concluded” that its chosen cost

allocation basis most reliably reflects the respective shares of

reasonably anticipated benefits.

In contrast, absent the rule for SSAs, the Commissioner must

respect an allocation basis only if it most reliably reflects the

respective shares of reasonably anticipated benefits.

-

4 - -

5 - The predecessor of the SCM was established in 1968 but was

revised materially in 2006 to address its susceptibility to abuse

in some cases.

-






Loans Low value-added services Small transactions SMEs

Safe harbour interest rate Simplified transfer pricing method:


associated Shared Services

Arrangement (SSA) for SCM

transactions


- Option Option Option




128

Loans Low value-added

services


Safe harbour interest rate Simplified

transfer pricing

method:

Services Cost

Method (SCM),

and associated

Shared Services

Arrangement

(SSA) for SCM

transactions


1 Yes

Alleviated compliance burdens

No Yes

Alleviated compliance burdens

2 Taxpayers may choose to use a

safe harbour interest rate that is

based on the “applicable

Federal rate” (AFR).

In general, the rule allows

interest to be charged at a rate

not less than the AFR and not

greater than 130 percent of the

AFR. (The AFR is determined

monthly and is based on the

average interest rate on federal

government debt with similar

maturity dates.)

- - The APA Program will commence its due

diligence analysis earlier in the process to

accelerate the conclusion of the APA

negotiations

- A taxpayer will be advised of the APA Team‟s

initial conclusions before the prefiling

conference so that it can address these items

before or at the conference

- Before a taxpayer submits an APA request, the

APA Program and the taxpayer may agree to

reduce or eliminate specific items that would

otherwise be required

- The APA Program will endeavour to hold

meetings with the taxpayer at a location

convenient to the taxpayer

- At the taxpayer‟s request, the APA Program

will assist the taxpayer in the selection and

evaluation of comparables, as well as the

computation of any appropriate adjustments to

comparables

- The APA Program may consider other

procedures suggested by the taxpayer to reduce

the taxpayer‟s administrative and financial

burden, consistent with the objectives of the

APA Program and the requirements of § 482




129


measures?



costs?



1.

2. Based on the relative lack of controversy in connection with this rule [on the safe harbour

interest rate], we believe it has provided certainty for taxpayers and has freed audit teams to

pursue bigger and more important issues. Thus, the informal determination has been that the

potential for whipsaw is outweighed by the benefit of avoiding costly but relatively

unproductive audits of loans that do not involve taxpayers in the lending business. It is thus one

of the few instances where a safe harbour has been deemed appropriate in simplifying the

administration of transfer pricing.

The objective of the rule [on the services cost method] is to administratively take low value

services off the audit table so that both audit teams and taxpayers can devote their resources to

more significant transfer pricing or other audit issues.

There is a whipsaw potential, but such whipsaw is believed to be minimal in comparison with

the corresponding benefit gained through conservation of audit resources

3.





No


(Yes/No)

-2 If yes:





1. Yes. The arm‟s length principle and any simplification measures thereunder apply equally to

both domestic and cross-border transactions

2. Yes. The arm‟s length principle and any simplification measures thereunder apply equally to

both domestic and cross-border transactions

3. No

130

EUROPEAN UNION

Set up in 2002, the EU Joint Transfer Pricing Forum (JTPF) is an expert group composed of EU Member

States and private-sector experts in the field of transfer pricing. The JTPF assists and advises the

Commission on EU transfer pricing tax issues.

The remit of the JTPF is to provide pragmatic, non-legislative solutions, within the framework of the

OECD Guidelines, to the practical problems encountered when implementing EU MS transfer pricing

rules. The JTPF outcomes take the form of clarifications on points of difficulty and suggestions on how to

simplify the process involved in the evaluation of transfer prices.

To date Member States have agreed to and given a political commitment to implement: codes of conduct

for the effective implementation of the Arbitration Convention - the EU transfer pricing double taxation

dispute resolution mechanism; a code of conduct on transfer pricing documentation for associated

enterprises in the EU; and guidelines for Advance Pricing Agreements within the EU.

More recently, a JTPF report has been agreed to cover: “Transfer Pricing and Small and Medium-sized

Enterprises”.

Additionally, an ongoing JTPF work programme item is the monitoring of the effectiveness of the

implementation of its previously agreed simplification measures.

Furthermore, it is expected that the Economic and Financial Affairs Council at its meeting of 17 May

2011 will also adopt conclusions on “Guidelines on low value adding intra-group services” and “Potential

approaches to non-EU triangular cases”.

The work done by those OECD members who are members of the JTPF also contributes to their

individual country transfer pricing simplification measures and so is of relevance to your questionnaire.

Finally, the continued support given by Member States, the large majority of whom are also OECD

members, to the work of the JTPF demonstrates their commitment to seek out simplification measures.

Documents

MULTI-COUNTRY ANALYSIS OF EXISTING TRANSFER PRICING